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A Guide to Planning for Healthcare Costs in Retirement

A Guide to Planning for Healthcare Costs in Retirement

December 11, 2023

Make no doubt about it: one of the biggest financial concerns for people in their retirement days is the cost of healthcare. This can be difficult to plan for because you never know what the future might hold for your overall health. Healthcare costs in retirement are a key part of saving as much as you can to enjoy your golden years to the best of your ability. 

How can you plan for healthcare as you age and move into retirement? These guidelines will get you thinking about how much you might spend. 

Stay Healthy

The best thing you can do to keep healthcare costs low is to keep yourself as healthy as possible. In other words, you should do all of the things that you may have been putting off: exercise, eating a balanced diet, and even attending preventive care appointments with your primary care doctor. 

This allows you to catch worrisome symptoms early before they balloon and cost you more in the long run. Plus, you can reduce your risk of common preventable problems such as type 2 diabetes, heart disease, and more. 

This can help save you money on long-term healthcare costs that often surface well into retirement. 

Educate Yourself

Many people move into retirement planning to make good use of Medicare insurance plans. Know what you can expect to pay in premiums, which varies depending on what part of Medicare you most need. Educate yourself on this important program and what the policies will actually cover. 

You might want to investigate each of the parts to see what it will cost you and how much you can estimate spending out of pocket for healthcare. Keep in mind that you will not qualify for Medicare until age 65, so you may need to have another plan if you intend to retire early. 

Don’t set it and forget it, either. Changes to Medicare can occur every year and you need to keep abreast of any changes that affect your plan.

Estimate Future Healthcare Costs

Estimating healthcare costs in retirement often depends on factoring in what you pay for your healthcare needs right now and what you can expect in the future. 

Knowing your family history is an important component of estimating costs because it shows you what you might be more susceptible to experiencing as you age. This is a good time to start asking questions of your family members if they are still around.

You should also factor in inflation and the ever-rising cost of medical services. What might be an affordable procedure today will likely be more expensive five, ten, or even fifteen years down the road. Plan ahead and account for these core items to ensure you have enough to support you during retirement. 

Contribute to an HSA

If you currently have a high deductible health insurance plan, a Health Savings Account (HSA) is an excellent way to maximize your tax deductions at the end of the year. You can contribute money to an HSA without paying taxes on it during the year that you made the contributions. 

For 2023, the annual HSA contribution limit is $3,850 for self-only coverage and $7,750 for family coverage. If you are age 55 or older, you can increase that by an additional $1,000 in catch-up contributions.

As long as you withdraw the funds from your HSA for a qualified medical expense, you also enjoy tax-free withdrawals.

Consider Long-Term Care Insurance

Getting long-term care insurance is one area where you will want to plan ahead when it comes to your future healthcare costs. Long-term care insurance is generally less expensive to purchase when you are younger and still in good health. 

If you think that you might want to cash in on a long-term care policy, start shopping around as soon as possible. You might be surprised at how costs can skyrocket later in life.

Have a Retirement Plan 

One of the simplest ways to ensure that your healthcare costs are covered in retirement is to make sure you have saved enough.

While this is far from easy, maintaining a secure and steady stream of dependable income allows you more flexibility when it comes to your healthcare costs. With a dependable plan in place, you know you have money coming in and won’t have to fret that a bill will have to go unpaid in order to cover healthcare costs. 

To this end, you should focus on building up retirement savings accounts like a 401(k), an IRA, or even a charitable remainder trust (CRT). With a CRT, you can secure ongoing payments based on the value of the assets placed within the trust for a set number of years or for life, which can be a dependable income stream in retirement. 

Another core component of your financial plan is to maintain an emergency fund, which should be liquid, safe, and easily accessible. About $20,000 should cover most unforeseen needs.  This rainy-day account allows you to make withdrawals for unexpected medical expenses without derailing your retirement savings. If you don’t already have an emergency fund, start building one right away.

Plus, consider downsizing or moving to a location with a lower cost of living for retirement. Use this time wisely to reduce your living expenses. This can help keep your finances healthier so you can better weather unexpected expenses for medical care. 

Get Comprehensive Wealth Planning

When you need the help of a professional team to manage your estate and put together a retirement plan, you need Magellan on your side. We offer comprehensive wealth planning including coordinated financial, tax, and legal aspects of your finances all under one roof. All of our advisors are also fiduciaries, meaning that it is our job to look out for your best interests. 

If you are ready to start thinking about healthcare costs in retirement or want to establish a CRT that can help you fund your retirement, contact Magellan today


This material provided by Kevin Meaders and written by Axle Eight a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.